Houllier hoped to see his side clinch a place in the Champions League semi-final and overcome the German league leaders.
He was only 11 minutes away from seeing his dream realised when sub Jari Litmanen scored a second goal for Liverpool.
That could have proved vital but with just six minutes to go Lucio grabbed the winner for Leverkusen to bring this match to an unbelievable finish.
Liverpool could hardly believe it as they were hoping to clinch a potential semi-final place against Manchester United.
Houllier took his seat on the touchline alongside his assistant Phil Thompson and Liverpool almost made a blistering start.
Emile Heskey saw his shot from just inside the area deflected to safety after Michael Owen and John Arne Riise had linked up.
Liverpool were looking lively and the Norwegian Riise strode forward in the sixth minute only to see his speculative shot end up in the crowd.
Heskey then picked out Steven Gerrard but he went for the wrong option and the move broke down.
The Liverpool fans were in full voice, knowing their team were 1-0 ahead from the first leg while Leverkusen were desperately trying to push men forward in search of the equaliser.
And it came in the 16th minute thanks to a spectacular strike from 20 yards by Michael Ballack. It was a goal out of nothing and just the kind of start Liverpool did not want.
Liverpool hit back almost immediately when Owen went on a surging run only to be denied at the last minute by goalkeeper Jorg Butt.
Leverkusen almost added a second in the 40th minute when goalkeeper Jerzy Dudek did well to push away a shot from Thomas Brdaric.
Liverpool restored their advantage in the 42nd minute when Abel Xavier celebrated his return to the side after a hamstring injury by pulling them level on the night.
He got away from his marker to power home a header from Danny Murphy's corner.
Liverpool stepped up the pace at the start of the second half and Michael Owen saw a shot come back off the post. Then he chipped the ball narrowly wide of the target after beating Butt.
In between however there was a scare when Ze Roberto released Brdaric but Dudek raced off his line to block the shot.
It was a warning shot across Liverpool's bows and they then conceded two goals in five minutes.
Ballack got his second goal of the game when he headed home Schneider's cross in the 63rd minute.
Five minutes later Dimitar Berbatov pulled Leverkusen ahead on aggregate when he rattled a shot in from close range after Stephane Henchoz had cleared off the line.
Litmanen seemed to have thrown Liverpool a lifeline in the 79th minute when he slid away from Diego Placente before finishing clinically.
But there was still one bitter twist for Liverpool with Lucio scoring the winner in the 84th minute and completing the collapse of one of England's meanest defences.